Is real estate price converted to pesos at purchase?

[EL_TIGRE_de_Tigre]

The question always to ask is: “What ELSE could I do with my money?”

Consider USD$250,000 properties in Florida and in CABA. One you can buy for 20% down and a rock-bottom 30-year mortgage in the most stable nation on Earth. The other, you tie up your entire $250k in real estate in a developing country.

I can think of many better ways to invest a quarter million dollars right now than buying real estate in Argentina.

I love CABA... but here I rent.

Greg,

You nailed it!

EE UU ... 20 % down (avoids PMI) ultra low, fixed interest rate in a stable economy ... boringly stable.

Argentina ... pay in full, tie up your money, highly illiquid and returns nothing as a rental. That's a dud of a finical transaction. I don't care how much money you have to throw away. Even Pablo Escobar did better with his piles of cash according to the story, some was used as heating fuel. It was burned to make heat!

 

[garryl]

The question always to ask is: “What ELSE could I do with my money?”

Consider USD$250,000 properties in Florida and in CABA. One you can buy for 20% down and a rock-bottom 30-year mortgage in the most stable nation on Earth. The other, you tie up your entire $250k in real estate in a developing country.

I can think of many better ways to invest a quarter million dollars right now than buying real estate in Argentina.

I love CABA... but here I rent.

Buy gold ?

 

[garryl]

Greg,

You nailed it!

EE UU ... 20 % down (avoids PMI) ultra low, fixed interest rate in a stable economy ... boringly stable.

Argentina ... pay in full, tie up your money, highly illiquid and returns nothing as a rental. That's a dud of a finical transaction. I don't care how much money you have to throw away. Even Pablo Escobar did better with his piles of cash according to the story, some was used as heating fuel. It was burned to make heat!

There was a time when everything was cheap in Argentina (2002 - 2007 ?), BsAs looked like a nice retirement place, many retired flocked to BsAs, maybe more ladies (than gentlemen) who reached their retirement age (60s). I walked in Recoleta, would see a gringo lady whom I just saw at a Tango class, reading a book and waiting for her steak to appear on her dining table. Where are they now ? They all got burned, the pain of not being able to find a repairman easily, misc taxes they do not understand, hopeless to understand the procedure of sale of the property, unreliable airbnb manager, the maid who stole their cash, super expensive nice furniture .. the list keeps going. Those who sold earlier probably had smaller loss. Some did not care, to many, the investment in the fun apt in Argentina is not a big part of their asset, so they just sold it at any price to get out. Those who sold during Marci time probably are the luckiest, higher price and less taxes. But most expats owners got out before Macri. Looking back, it was a good decision. You can always visit Argentina without headache and trouble of owning real estate.

 

[EL_TIGRE_de_Tigre]

I always believed in ownership of your primary place to live.

But in this ever changing world and particularly in a place like Argentina, regardless of how long you plan to be here, renting is simply the very best thing to do. The market is very overpriced relative to economic opportunity and workplace compensation. It is and it has mostly always been.

The RE buying and selling process is not easy. It is very complicated. The market is not liquid. The transaction needs to be paid in full. And rentals are dirt cheap. That is more than enough in terms of information to dissuade a person from owing much of anything, unless you can steal it!

Anything you buy here, has to be very cheap. You need as much upside potential as you can get, because you could retail y take it on the chin if you don't enter at a very good price level.

 

[Alpinista]

I always believed in ownership of your primary place to live.

But in this ever changing world and particularly in a place like Argentina, regardless of how long you plan to be here, renting is simply the very best thing to do. The market is very overpriced relative to economic opportunity and workplace compensation. It is and it has mostly always been.

The RE buying and selling process is not easy. It is very complicated. The market is not liquid. The transaction needs to be paid in full. And rentals are dirt cheap. That is more than enough in terms of information to dissuade a person from owing much of anything, unless you can steal it!

Anything you buy here, has to be very cheap. You need as much upside potential as you can get, because you could retail y take it on the chin if you don't enter at a very good price level.

Exactly.

People always make the mistake comparing absolute house prices with the US or Europe and then think it is rather cheap here. You also need to consider the underlying economy here (with a minimum salary now lower than Haiti, --> just kidding ..... )

So thumb of the rule: for a newcomer who comes to Argentina it is certainly not recommendable to buy, even more at this point and time. After a few years you can still buy something if you are reasonably sure that you will stay here for a very long time. But even for those staying long time here, it might in many cases still the better option to rent (for the reasons you outlined).

The reason why I bought something in 2018: I have family with kids and i plan to stay here for at least 5 years. I used to live here already a few years back so I was familiar with country, city and the neighbourhood. Even if I were to move back to Europe one day, I would still come back here every year for 1 or 2 months. For this case I bought a house which can be easily converted into two Airbnb departments which then would provide some income (plan B). So I have no intention to ever sell the house.

 

[Greg S]

Basic rule of finance: Always use OPM when you can. What’s OPM? Other People’s Money. Leverage real estate purchases using OPM (mortgages). When you can’t, as in Argentina, rent. And use the free capital for other investments. Or for winters in Europe.

 

[garryl]

Most Argentines think the best and most secure way to fight the inflation is to buy real estate. But you can buy gold too. 150k dollars does not give you much real estate, but that is a lot of gold. Gold is better than dollar (for now), and dollar is better than Ar Peso.

 

[Sequoia1321]

I saw this relatively recent article which has some price charts and discusses the issue quite deeply, https://www.globalpropertyguide.com/Latin-America/Argentina/Price-History, but am still confused. For example, the article says: "In August 2019, property prices in Buenos Aires fell by 2.5% y-o-y to US$2,333 per square meter (sq. m), based on data published by Clarín. When adjusted for inflation, prices actually plunged by a whoping 37%." I don't know much about economics, but I see the article shows a price chart of property prices that is showing is USD, and the price has been pretty much in an uptrend:



So does this mean if I purchased in USD, let's say in 2016, I would have made a profit, assuming I could actually sell in this illiquid market? For example, if I take my USD and buy lunch in BA I assume the price chart of that lunch would be in a downtrend in USD? But the price chart for housing is showing in an uptrend in USD. I don't know, maybe I misunderstood something. Not saying that you are wrong about not purchasing right now, just trying to get a clear picture of the situation. That chart looks like it might be ready for some pull back, and it's missing the more recent data. Anywhere I can get a more recent price chart? Also, I understand not buying property as an investor due to the low rental income. But was more concerned as someone who might live in BA long term.

 

[EL_TIGRE_de_Tigre]

I saw this relatively recent article which has some price charts and discusses the issue quite deeply, https://www.globalpropertyguide.com/Latin-America/Argentina/Price-History, but am still confused. For example, the article says: "In August 2019, property prices in Buenos Aires fell by 2.5% y-o-y to US$2,333 per square meter (sq. m), based on data published by Clarín. When adjusted for inflation, prices actually plunged by a whoping 37%." I don't know much about economics, but I see the article shows a price chart of property prices that is showing is USD, and the price has been pretty much in an uptrend:

View attachment 7402

So does this mean if I purchased in USD, let's say in 2016, I would have made a profit, assuming I could actually sell in this illiquid market? For example, if I take my USD and buy lunch in BA I assume the price chart of that lunch would be in a downtrend in USD? But the price chart for housing is showing in an uptrend in USD. I don't know, maybe I misunderstood something. Not saying that you are wrong about not purchasing right now, just trying to get a clear picture of the situation. That chart looks like it might be ready for some pull back, and it's missing the more recent data. Anywhere I can get a more recent price chart? Also, I understand not buying property as an investor due to the low rental income. But was more concerned as someone who might live in BA long term.

I am only focussing on these last two sentences of yours:

"Also, I understand not buying property as an investor due to the low rental income. But was more concerned as someone who might live in BA long term."

Here are my parameters for an example:

$250K cash in your hand. More like in your bank account, but you get the picture. It's your money and you control it.

vs

Buying a property for $250K in Argentina. No mortgage, 100% purchase with your $250K.

(And the $250K purchase does not take into account all the associated fees and costs with the transaction ... but it bumps that $250K number higher.)

Okay, here we go ...

Let's assume the same property can be bought or rented. If you buy it, the price is $250K. If you rent it, the price is $500 per month. (That probably is a little high, but we will overestimate just the same.) And will further assume that you can lock it up 5 years at a time with very little change in price.

We know what happens when you buy the property. Your money is gone, make that exchanged for a hard asset. No mortgage ... simply gone.

If you had a mortgage. You would have plunked down a 20% downpayment to avoid PMI and financed $200K at about 3 1/2 % for 30 years assuming you were in EE UU. and had a monthly payment of $898.00. Total interest on the loan, assuming no acceleration of principal would be $123K.

That $123K NUMBER LOOKS BIG, BUT NOT REALLY. I'd happily pay it, because I know I could take that $200K I didn't put into the transaction and invest it (RELATIVELY SAFELY!) over the life of the mortgage (30 years) with great results. But for the sake of shooting low and being ordinarily average ... we will assume 5% annual rate of return compounded ... That would get our $200K to about $864K! A whopping difference of $741K more than the $123K paid on the mortgage interest side of things. That is a factor of about 6! UNREAL!

And it gets even more unreal because I know I can trounce that 5% number due too my abilities to be a superb stock picker / trader. But I won't even go there. I am sticking with PLAIN JANE / PLAIN JACK investor and their ordinary results.

Are you with me so far?

Now, let's assume we RENTED the same property for $500 per month. And let's further assume that we allocated $50K of our $250K to this purpose. That will give us 100 months of rent payments @ $500 per month for ... or a little more than 8 years of having a roof over our head. Obviously, if you haven't connected the dots yet, we will be investing the $200K as discussed earlier with astounding results.

Even if you never put a penny into the next 22 years of needing a place to live, you should be in good shape after 8 years (Your money at 5% would have grown to $295K assuming you were good.) of investing the $200K. Such that you could now begin to draw $500 per month from your account to pay the rent, while letting the lion's share of the sum to "WORK" for you.

I could go on and on ... but hopefully I have gone far enough to demonstrate to you WHY YOU DON"T WANT TO BUY A PROPERTY IN A PLACE LIKE ARGENTINA! It simply does not favor you. It is simply not the smartest thing you can do with your capital. And it definitely will cost you in the long run.

I don't care if you are going to live here for the next 75 years. Owning a place as opposed to renting one is a misguided state of mind. You are trying to live The American dream in a place more aligned with FINANCIAL HELL!

 

[Sequoia1321]

I am only focussing on these last two sentences of yours:

"Also, I understand not buying property as an investor due to the low rental income. But was more concerned as someone who might live in BA long term."

Here are my parameters for an example:

$250K cash in your hand. More like in your bank account, but you get the picture. It's your money and you control it.

vs

Buying a property for $250K in Argentina. No mortgage, 100% purchase with your $250K.

(And the $250K purchase does not take into account all the associated fees and costs with the transaction ... but it bumps that $250K number higher.)

Okay, here we go ...

Let's assume the same property can be bought or rented. If you buy it, the price is $250K. If you rent it, the price is $500 per month. (That probably is a little high, but we will overestimate just the same.) And will further assume that you can lock it up 5 years at a time with very little change in price.

We know what happens when you buy the property. Your money is gone, make that exchanged for a hard asset. No mortgage ... simply gone.

If you had a mortgage. You would have plunked down a 20% downpayment to avoid PMI and financed $200K at about 3 1/2 % for 30 years assuming you were in EE UU. and had a monthly payment of $898.00. Total interest on the loan, assuming no acceleration of principal would be $123K.

That $123K NUMBER LOOKS BIG, BUT NOT REALLY. I'd happily pay it, because I know I could take that $200K I didn't put into the transaction and invest it (RELATIVELY SAFELY!) over the life of the mortgage (30 years) with great results. But for the sake of shooting low and being ordinarily average ... we will assume 5% annual rate of return compounded ... That would get our $200K to about $864K! A whopping difference of $741K more than the $123K paid on the mortgage interest side of things. That is a factor of about 6! UNREAL!

And it gets even more unreal because I know I can trounce that 5% number due too my abilities to be a superb stock picker / trader. But I won't even go there. I am sticking with PLAIN JANE / PLAIN JACK investor and their ordinary results.

Are you with me so far?

Now, let's assume we RENTED the same property for $500 per month. And let's further assume that we allocated $50K of our $250K to this purpose. That will give us 100 months of rent payments @ $500 per month for ... or a little more than 8 years of having a roof over our head. Obviously, if you haven't connected the dots yet, we will be investing the $200K as discussed earlier with astounding results.

Even if you never put a penny into the next 22 years of needing a place to live, you should be in good shape after 8 years (Your money at 5% would have grown to $295K assuming you were good.) of investing the $200K. Such that you could now begin to draw $500 per month from your account to pay the rent, while letting the lion's share of the sum to "WORK" for you.

I could go on and on ... but hopefully I have gone far enough to demonstrate to you WHY YOU DON"T WANT TO BUY A PROPERTY IN A PLACE LIKE ARGENTINA! It simply does not favor you. It is simply not the smartest thing you can do with your capital. And it definitely will cost you in the long run.

I don't care if you are going to live here for the next 75 years. Owning a place as opposed to renting one is a misguided state of mind. You are trying to live The American dream in a place more aligned with FINANCIAL HELL!

Your response is interesting, and for someone like you who is confident as an investor maybe it makes extra sense. Something to think about. I heard about compound interest but wasn't very familiar with it. Pretty dramatic results. But when you say you can get at least 5% return per year I assume you're not talking about just parking your money in a savings account, but some sort of investment and risk involved? Is that right? And that would be for 30 years of trying to invest that money in something like the stock market, index funds? I don't know how many people would know how to do that or be comfortable with it, but sounds interesting. One interesting possibility I would want to research if I were doing that is putting my money into crypto stable coins that supposedly stay true to the USD, and to spread that out across various platforms to spread out the risk. They apparently pay up to 10% interest rate. Don't know much about this though and how safe it is, how stable stable coins really are, etc., but that might be one route I would research personally, and then I wouldn't have to try to invest the cash in the stock market. Anyways, the $500 per month rent you would pay comes out to 180K after 30 years. What about the compound interest on that which you might have earned had you not spent it? Also, what about the price appreciation of the property after 30 years? That chart I posted earlier show the price went from $750 to $2250 in 15 years, is that right? If so that's 3x increase, so your 250K would be $750K and we're not even talking about 30 years yet. And what about the compound interest on the mortgage interest you would pay that you would have earned had you not spent it on interest? And can the average person only pay 20% down and get the low interest rate mortgage you mention? I don't know. Lot's of people buy property in cash, and in BA it seems to have been going up in USD price when many other things are going down in USD price from what I can tell. Sounds interesting, something to consider and I guess it also depends on individual situations.